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CORPORATE FINANCE

Do you seek for the optimal finance for your acquisition?

How does acquisition finance work?

In general, acquisition finance can be separated into (a) a financing structured based on the solvency of the buyer (corporate structure) and(b) a financing solution based on the solvency of the target (leveraged structure).
Especially debt financed acquisitions yield both a high risk and a high upside potential. The low equity needs allow for the take-over of a significantly bigger company to grow exponentially. On the other hand, a series of parameters need to be managed carefully to have a longterm success with the acquisition.
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Elements of structured acquisition finance

Equity capital
Mezzanine capital
Vendor oans

Senior and junior loans
Earn-outs
Internal means of finance within the target

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Practical rules for leveraged finance

The equity share in the acquisition vehicle (NewCo) should be minimum 30 % of the purchase price, for smaller transactions min. 40-45 %
The maximum debt capacity of corporations by rule of thumb should be no more than 3-times EBIT
The debt capacity can be enlarged, the higher and more stable the acquired EBIT is

Costs for mezzanine capital are significantly higher than senior/junior loans. Therefore, a mezzanine tranche of 1-1,5-times EBIT should not be exceeded.
Free Cash-Flow should be around 1⁄4 of debt and 1⁄3 of total finance
In order to approach debt and mezzanine investors financial models are required, that take account of future deviations. As such the financing remains flexible enough with sufficient headroom that the covenants don't hamper future flexibility.

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How can Proventis be of help?

Proventis arranges your financial solution with the best fit. You will be actively supported by Proventis during the entire process - from planning to execution. Based on the strong network, Proventis will bring you in touch with the most attractive investor for your individual situation. Furthermore, you will benefit from the
comprehensive industry expertise, the long standing transaction experience, smooth processes and the entrepreneurial background of the Proventis team.
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